Demonetisation powers acceleration in direct-tax collections in first nine months of current fiscal

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Published: January 10, 2018 2:16:57 PM

The government has collected Rs 6.56 lakh crore in direct taxes, up 18.2 percent on hefty advance tax mop-up, for the first nine months of the current fiscal.

The net collections represent 67 percent of the total Budget Estimate of Rs 9.8 lakh crore for direct taxes in 2017 -18.

Higher personal income tax collections of 21.6 percent in the April-December period of the current fiscal reflects widened tax base post demonetisation, believe tax experts. The government has collected Rs 6.56 lakh crore in direct taxes, up 18.2 percent on hefty advance tax mop-up, for the first nine months of the current fiscal. Attributing higher advance personal tax collections to the positive impact of demonetisation, Samir Kanabar, Tax Partner, EY India said, “higher personal advance-tax collection of 21.6% reflects the expansion of tax base and impact of demonetization; this, probably allays fears of a slowdown in taxpayer base. Also, the higher share of income-tax (67%) is significantly higher as compared to an average share of around 53% over last four years.  While this should be compared with growth/collection of GST, to evaluate this as an aberration due to stringent measures to clamp down on black money.” The net collections represent 67 percent of the total Budget Estimate of Rs 9.8 lakh crore for direct taxes in 2017 -18. As much as Rs 3.18 lakh crore has been received as advance tax up to December 2017-18, reflecting a growth of 12.7 percent over the year-ago period.

This surge in tax mop-up can also be attributed to GST and government’s push for digital transactions in addition to the note ban exercise conducted by the government in November 2018 which expanded the tax base, said Naveen Wadhwa, DGM, Taxmann. “Undoubtedly, the increase in collection of Direct-tax was expected. Such unprecedented increase in revenue could be attributed to demonetization, GST and Govt.’s emphasis on digital transactions. Growth in personal advance tax has surpassed the increase in payment of corporate advance-tax. Moreover, such increase in personal tax could be the result of simplification in the compliance processes for small business entities and increasing the threshold limit for opting the Presumptive Taxation Scheme under Income-tax and Composition Scheme under GST, “ he said. Growth in advance tax paid by corporates is 10.9 percent, while in case of personal income tax it is 21.6 percent. Refunds amounting to Rs 1.12 lakh crore have been issued during the first nine months of the current fiscal. Gross direct tax collections (before adjusting for refunds) have increased by 12.6 per cent to Rs 7.68 lakh crore. Even the robust corporate profits observed this year added to the increase in advance tax collections. “The increase in direct tax collections is particularly encouraging and indicates a strengthening of corporate profits. This is accentuated by the fact that one expected that advance tax payments would be subdued with funds being locked up in GST payments. All in all, this should bring cheer to industry watchers,” said Riaz Thingna, Director, Grant Thornton Advisory Private Limited:

The Centre’s fiscal deficit breached the budgeted level to touch 112 percent of the full-year target in just eight months, reinforcing concerns about a slippage in 2017-18 unless revenue mop-up goes up substantially and/or the government reins in spending in the last quarter. The deficit in the corresponding period of last year was 85.8 percent. A front-loading of expenditure following the Budget date advancement in 2017 made the deficit figures up to November appear worse. A massive plunge in non-tax revenue and lower-than-expected goods and services tax (GST) collection caused a revenue shortfall, while both revenue expenditure and the more-productive capital spending inched up, driving up fiscal deficit to Rs 6.12 lakh crore against the full-year estimate of almost Rs 5.47 lakh crore, showed official data. The government in December last year had announced plans to borrow an extra Rs 50,000 crore through dated securities this fiscal. However, with direct tax collection still keeping with the desired trend, an increase in tax mop-up, PSU dividends and disinvestment receipts in the remaining months of the fiscal would be key to preventing a flare-up of the fiscal deficit, which was targeted at 3.2 percent of GDP in FY18. Already, at around Rs 36,768 crore, the Centre’s average monthly GST collection between July and November has been around Rs 6,000 crore lower than the desired level to achieve revenue neutrality. Since direct tax collections usually go up in the last quarter of a fiscal, the government may hope to see a repeat of the trend this year as well. However, in the case of GST, only eight months’ collections will be accounted for in the current year, though by March-end the new tax will have existed for nine months. Revenue deficit touched 152 percent of the Budget estimate for the full year during April-November.

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